Lowercase letters don’t ordinarily need letterspacing.
Capital letters usually appear at the beginning of a word or sentence, so they’re designed to fit correctly next to lowercase letters. But when you use capital letters together, that spacing looks too tight. That’s why you always add 5–12% extra letterspacing to text in all caps or small caps. This is particularly important at small sizes (e.g., the footer of a court filing).
These are not absolute limits—use your judgment. But avoid the common error of spreading letters too far apart. If the spaces between letters are large enough to fit more letters, you’ve gone overboard.
Typographer Frederic Goudy is famously credited with opining that
“Anyone who would letterspace lowercase would steal sheep”. But a few sources claim that his original comment concerned blackletter fonts, not lowercase, and that he used a more colorful verb than“steal”. I accept the minority view on Goudy’s comment because, as Goudy was doubtless aware, sometimes lowercase should be letterspaced. Fonts intended for body text have spacing optimized for body-text point sizes (approximately 9–13 point). But typographers will often add letterspacing to lowercase text smaller than 9 point in order to keep the spaces between letters distinct. Similarly, typographers will often remove letterspacing from lowercase text used at larger sizes (e.g., headlines).
As with kerning, if you use paragraph and character styles to make a style with all caps or small caps, include letterspacing as part of the style definition.